OIG Work Plan Focuses on Quality, DME, and Part D

14 October 2008 Publication
Authors: Maria E. Gonzalez Knavel Lawrence W. Vernaglia Judith A. Waltz

Legal News Alert: Health Care

The U. S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) began the new fiscal year, as it does each October 1, by issuing its annual Work Plan. The FY 2009 Work Plan identifies priorities primarily targeted by the Office of Audit Services and the Office of Evaluation and Inspections. OIG draws on a number of sources in planning which projects to prioritize each year, including statutorily mandated activities, requests from Congress or the Secretary of Health and Human Services (Secretary), and significant management and performance challenges facing HHS. Many projects can be traced directly to newspaper headlines: issues that catch the attention of OIG through its enforcement and case settlements often translate into new audit and evaluation projects.

This year, OIG projects are focusing on some familiar themes — quality of care and durable medical equipment (DME) as well as some newer themes — provider-based status, Part D, and the Comprehensive Error Rate Testing (CERT) Program.

Medicare Providers

Provider-Based Status for Inpatient and Outpatient Facilities and Hospital Ownership of Physician Practices. OIG’s interest in hospital provider-based operations continues with two new or reconstituted reviews. The term “provider-based” identifies a department, location, facility, or entity as a formal part of a main “provider” for Medicare purposes. When a hospital identifies such a facility as provider-based, the services rendered there qualify for hospital-level inpatient or outpatient reimbursement — as opposed to reimbursement for a freestanding entity. While the concept has been incorporated into the Medicare program since the 1960s, it was formalized following the creation of the Outpatient Prospective Payment System. Simultaneously, OIG raised concerns about potential abuse of the status through several reviews in 1999 and 2000. OIG noticed the project in its 2005 Work Plan and in the 2005 Supplemental Compliance Guidance for Hospitals.

Two reviews will explore whether hospitals are, in fact, complying with the regulatory criteria for provider-based status. The first review will look at a variety of compliance issues arising from the regulations. The second review focuses on the same question addressed in the 1999 report: whether “hospital-owned physician practices” hold a provider-based designation properly. One curious line in the Work Plan has already stirred some questions in the provider community: “CMS [the Centers for Medicare & Medicaid Services] has the authority to grant provider-based status.” While true, the regulations also make clear that hospitals need not request (or “attest” to) provider-based status to be entitled to reimbursement. In light of OIG’s continued interest in this issue, hospital compliance programs should put this issue on their own work plans.

Inpatient Hospital Payments for New Technologies. OIG will review payments made to hospitals for “new” services and technologies. “New” medical services and technologies are defined by regulation, and a hospital may receive additional payment if the new service or technology is demonstrated to be otherwise inadequately paid under the diagnosis-related group (DRG) system. OIG will determine whether hospitals have submitted claims in accordance with these criteria and were reimbursed appropriately for costs associated with the new services and technologies.

Inpatient Rehabilitation Facility Payments. OIG will review inpatient rehabilitation facilities’ (IRF) claims for Medicare reimbursement when patients are transferred from IRFs to other IRFs, long-term care hospitals (LTCH), acute inpatient hospitals, or nursing homes. The review will focus on whether appropriate adjustments are made to the prospective payment system (PPS) for IRFs when patients are transferred to these providers.

Reliability of Hospital-Reported Quality Measure Data. OIG will review hospitals’ controls related to quality of care data that they submit to CMS. Hospitals are required to report quality measures for a set of 10 indicators. Hospitals that fail to report these measures to CMS receive a two-percent payment reduction. OIG will determine whether hospitals have implemented sufficient controls to ensure that their quality measurement data are valid.

Coding and Documentation Changes Under the Medicare Severity Diagnosis-Related Group System. OIG will review the impact of the Medicare severity diagnosis-related group (MS-DRG) system. The MS-DRG system is a new system for hospital inpatient reimbursement, developed to improve recognition of severity of illness and resource consumption. OIG will examine coding trends and patterns under the new system and determine whether any specific MS-DRGs are vulnerable to potential upcoding.

Serious Medical Errors (“Never Events”). As dictated by the Tax Relief and Health Care Act of 2006, OIG is conducting a study of serious medical errors, also known as never events. The study will focus on: the extent to which the Medicare program paid, denied payment, or recouped payment for services furnished in connection with such events; the extent to which beneficiaries paid for such services; CMS’s administrative processes for detecting and paying for never events; and hospital compliance with CMS requirements.

Part B Services in Nursing Homes: Mental Health Needs and Psychotherapy Services. Nursing homes are required by regulation to provide care and services necessary to attain or maintain the highest practicable physical, mental, and psychosocial well-being of each resident. OIG will review psychotherapy services provided to skilled nursing facility (SNF) residents during noncovered Part A stays to determine medical necessity, appropriateness of coding, and documentation.

Oversight of Nursing Home Minimum Data Set Data. OIG will review CMS’s oversight of nursing homes’ Minimum Data Set (MDS). Nursing homes are required to conduct accurate, comprehensive assessments for residents using a resident assessment instrument that includes the MDS. MDS data include the residents’ physical and cognitive functioning, health status and diagnoses, preferences, and life-care wishes. MDS data form the basis of CMS’s SNF PPS and are used by approximately half of the states as the basis of their Medicaid payment systems. OIG will review CMS’s processes for ensuring that nursing homes submit accurate and complete MDS data.

Medicare Payments for Colonoscopy Services. OIG will review physician payments for colonoscopy services. Colonoscopy claims came under fire during the Recovery Audit Contractor (RAC) demonstration project, and this study may have resulted from that scrutiny. OIG will determine whether payments for colonoscopy services were properly supported, billed, and paid.

Appropriateness of Medicare Payments for Polysomnography. OIG will examine Medicare payments for sleep studies. Sleep studies are reimbursable for patients with symptoms consistent with sleep apnea, narcolepsy, impotence, or parasomnia. Medicare payments for polysomnography increased from $62 million in 2001 to $215 million in 2005. OIG will examine the rise in Medicare payments for sleep studies and assess provider compliance with federal requirements.

Geographic Areas With a High Density of Independent Diagnostic Testing Facilities. OIG will review services and billing patterns in geographic areas with high concentrations of independent diagnostic testing facilities (IDTF). Because of earlier studies that indicated problems with IDTFs, including noncompliance with Medicare standards and potential improper payments, OIG intends to examine service profiles, provider profiles, beneficiary profiles, and billing patterns in areas with a high density of IDTFs.

DME and Supplies

OIG continues to ramp up its scrutiny of medical equipment and supplies. This year, OIG has identified at least 20 areas of concern, including:

Medicare Payments for Continuous Positive Airway Pressure Devices. This newly announced audit will review the propriety of Part B payments for these devices, which are covered only if a beneficiary has obstructive sleep apnea and the results of a polysomnogram performed in a sleep lab meet certain benchmarks.

Comprehensive Error Rate Testing Program: FY 2009 DME Error Rate and Corrective Actions. OIG will review both CMS’s testing methodology in determining the 2008 rate for erroneous DME payments and its corrective actions in response to OIG’s 2008 recommendations. CMS agreed to provide clear, written directions to providers for the correct billing of diabetic test strips, oxygen, and powered mobility devices in 2009. OIG will verify the actions CMS has taken in this regard. This is one of a number of studies scrutinizing the CERT program.

Medicare Part B Payments for Home-Blood-Glucose Testing Supplies. This project commenced with the 2008 Work Plan and continues to focus on whether physicians’ orders for blood glucose test strips and lancet supplies are supported by medical necessity, as required under local medical review policies. Continuing audits also will review whether modifiers are being used appropriately when submitting claims to identify whether or not a beneficiary is insulin-treated, as the allowable reimbursement amount changes depending upon this factor.

Payments to Medical Suppliers and Home Health Agencies Associated With “Currently Not Collectible” Overpayments. Expenditures for DME, prosthetics, orthotics, and supplies (DMEPOS) totaled $9.2 billion in FY 2006, and the government estimated 10 percent of these expenditures were inappropriate overpayments. Once an overpayment remains uncollected for 180 days, DMEPOS suppliers and home health agencies (HHAs) may not receive additional payments from Medicare. OIG will investigate whether suppliers in this situation are continuing to receive Medicare payments through their connection with other businesses.


Ambulance Services Used to Transport End-Stage Renal Disease Beneficiaries. In a carryover from last year’s Work Plan, OIG will review the extent to which ambulance services are used to transport end-stage renal disease (ESRD) beneficiaries to and from dialysis facilities. There have been a number of enforcement actions over the years in which the government has alleged that ambulance suppliers and providers have billed Medicare for transports of ESRD beneficiaries when such transports were not medically necessary (i.e., the beneficiary could have been transported using less expensive, albeit non-covered, means of transport). OIG further notes that Congress has required the Secretary to develop a report on bundled PPS for ESRD services, but that bundled PPS for ESRD services does not provide for ambulance services. OIG presumably intends to evaluate whether ambulance should be included in ESRD PPS.

CERT: FY 2008 Transportation Claims Error Rate. OIG indicates it will review certain aspects of the methodology used by CMS in determining the error rate for ambulance services under CMS’ CERT. To accomplish this objective, OIG will conduct a review of a subsample of claims from the sample previously reviewed as part of the CERT process. Using independent medical reviewers, OIG will determine the medical necessity and sufficiency of the documentation supporting the claims in this subsample.

Medicaid Payments for Transportation Services and State Policies to Safeguard Medicaid Nonemergency Transportation Services. OIG will review the appropriateness of states’ payments for transportation services pursuant to federal regulations that require each state to ensure coverage of necessary transportation for Medicaid beneficiaries to and from providers. OIG also will review states’ internal controls designed to address Medicaid nonemergency transportation services, which OIG characterizes as at “high risk for fraud.”

Contractor Operations

With regard to the businesses that contract with CMS to provide administrative and other services, OIG has identified at least 17 areas of review, including:

RACs: Reducing Medicare Improper Payments. OIG will review CMS’ oversight and monitoring of the RAC program to ensure reduction of improper Medicare payments through the detection and collection of overpayments, the identification of underpayments, and the implementation of actions to prevent future errors. This review is likely to generate some controversy given industry concerns regarding RACs.

Collection of Medicare Overpayments Referred by Program Safeguard Contractors. Program safeguard contractors investigate and identify overpayments made to Medicare providers and beneficiaries. OIG will review overpayments referred by program safeguard contractors in 2007, look at the collected amounts, and verify procedures used to identify and track potential fraud and abuse related to the payments.

Medicare Parts C and D
FY 2009 will be an active year for audits and investigations by OIG of Medicare Advantage Organizations (MAOs) under Part C and Medicare Prescription Drug Plans under Part D. The Work Plan identifies multiple subjects for which MAOs and Part D plans could be reviewed. We identify two major categories of OIG focus: duplicate payments; and fraud, waste, and abuse oversight of downstream entities.

Under the topic of duplicate payments, OIG has identified four areas of significant interest, including:

Part D Dual-Eligible Demonstration Project. OIG will be examining states’ submissions of data to CMS to review payments made under the dual-eligible demonstration project. The OIG audit will determine if the payments were accurate and supported properly. These audits will affect state Medicaid agencies and MAOs, but could potentially have ramifications to Part D pharmacy providers who submitted claims in accordance with the information provided by the beneficiary. State Medicaid agencies may seek recoupment for potential dual-eligible crossovers.

Medicare Part D Duplicate Payments. The second area of interest to OIG is auditing to reduce or eliminate duplicate capitated monthly Part D payments for the same beneficiaries, particularly when beneficiaries change plans or attempt to enroll in more than one plan at a time.

Duplicate Medicare Part A and Part B Claims Included With Part D Claims. An area of confusion within the Medicare program since the inception of the Part D benefit has been determining under which part of Medicare a prescription drug could be reimbursed. For example, Medicare Part A covers drugs for beneficiaries who are receiving inpatient treatment. Part B covers injectable drugs administered by physicians in an outpatient setting, certain self-administered drugs, drugs used in conjunction with DME, and certain vaccines. Most other drugs are covered under Part D. There has not been, until the current proposed Work Plan, a concerted effort by OIG to review claims under Part D to determine whether the claims were duplicated under Part A or Part B. This audit, as proposed by OIG, could potentially clarify an area of confusion in Medicare billing. However, at the same time, there is significant potential of negative financial impact to the plans.

Comparing Pharmacy Reimbursement Amounts: Medicare Part D to Medicaid. Lastly, under the category of duplication, OIG has proposed that it will begin comparing Medicare Part D drug reimbursement amounts to the amounts reimbursed by Medicaid for the same drugs. The results of such audits could affect Medicare reimbursement, as Medicaid reimbursement is usually lower. Audit results could lead to significantly revised reimbursement schedules. Such an impact upon Medicare reimbursement could make it more difficult for Part D plans and MAOs to populate their formularies, as reimbursement for the pharmaceuticals in question could be impacted negatively.

Oversight of Pharmacy Benefit Managers and Medicare Part D Data Submitted by Sponsors for Reconciliation. Under the category of fraud, waste, and abuse, OIG has begun to pay significant attention to the issue of MAOs and Part D plans not only in implementing their own compliance programs, but in monitoring their downstream entities, including pharmacy benefit managers (PBMs), for compliance in the prescription drug program. For example, OIG states in the Work Plan that it plans to review how well plan sponsors conduct oversight of PBMs with which they contract. OIG also plans to review Part D data submitted by plan sponsors for reconciliations. A significant amount of the data to be submitted by plan sponsors to CMS as part of their contractual obligations is generated by downstream entities. Therefore, review of this information will offer OIG another way to review how well plan sponsors and MAOs track the data provided, and therefore, the services provided by the downstream entities, for the purposes of reporting and participation in the Medicare program. It would be prudent for MAOs and Part D plan sponsors to review their fraud, waste, and abuse compliance programs and contractual relationships with downstream entities and how well policies and procedures are implemented internally and applied to the contracted downstream entities.


Providers Billing More Time Than Is Feasible in a Day. Physician services will be reviewed through audits where OIG partners with states to review upcoding and other billing problems to determine if claims are being submitted for more time than is feasible in a single day.

Medicaid Payments for Laboratory Services for Dual-Eligible Beneficiaries. Medicare reimburses 100 percent of allowable lab services for the dual-eligible Medicare/Medicaid population. OIG will review whether state Medicaid programs also are making lab service payments for these dual-eligible beneficiaries.

Medicaid Payments for Services Provided Under Section 1115 Demonstration Projects. State Medicaid demonstrations will be reviewed to determine compliance with the waivers granted by the federal government, as variations must be individually approved by the Secretary.

Enrollment of Excluded Medicaid Providers. OIG will review state processes for enrolling Medicaid providers to determine the extent to which states checked providers’ backgrounds before and after enrollment. For providers who were excluded from Medicaid participation, OIG will review the prevalence of judgments, tax liens, and criminal convictions and the amounts that states reimbursed these providers before they were excluded.

Transparency Within Nursing Facility Ownership. OIG has long had an interest in nursing facility ownership issues and, in particular, in the purchase of facilities by private equity or for-profit investors. Some of the concerns OIG mentions include dissipation of assets, resource reductions and other cost-cutting measures, and issues of legal liability. Consequently, OIG will study the effects of ownership changes on the quality of care provided to beneficiaries.

States’ Use of Civil Monetary Penalty (CMP) Funds. OIG will review whether states are correctly applying CMP recoveries for SNFs to programs that protect the health or property of the residents, as required by statute. OIG will specifically review the amounts received, states’ use of funds, and CMS oversight of states’ use of funds.

Medicaid Third-Party Liability for Prescription Drug Payments. OIG will review whether states are meeting their statutory obligations to identify and bill liable third-party payors for services provided to Medicaid beneficiaries with other coverage or sources of payment. OIG notes that one state auditor determined that the state Medicaid program had paid over $30 million in drug claims that may have been the responsibility of a third-party insurance payor in a two-year period.

Other Issues

Medical Identity Theft in Medicare. OIG will review CMS’s medical identity theft deterrence measures, including its outreach to beneficiaries, since early detection and notification can limit the impact of Medicare fraud.

Medicare and Medicaid: Security of Portable Devices Containing Personal Health Information at Contractors and Hospitals.OIG intends to review security controls implemented by Medicare and Medicaid contractors as well as hospitals, to prevent the loss of protected health information stored on portable devices and media.

Investigative and Legal Activities — Health Care Fraud. OIG has stated that it will continue to devote significant resources to the investigation of fraud committed against the Medicare and Medicaid programs. Areas that OIG will focus on in the coming year include: potentially illegal billing practices and business arrangements of suppliers and manufacturers; business arrangements that allegedly violate the Anti-Kickback Statute and the Physician Self-Referral (or Stark) Law; illegal marketing and distribution of prescription drugs; program vulnerabilities relating to Medicare Part D; fraudulent DME suppliers; and quality of care issues in nursing facilities and other care settings. In particular, OIG highlighted its efforts to expand the South Florida Initiative (involving fraudulent DME suppliers) into a third phase involving real-time analysis of Medicare billing data as well as efforts to expand the South Florida model to other “high-risk areas.” Although OIG does not specify the expansion areas, a similar project in the Los Angeles, California area has already obtained grand jury indictments. It has been suggested that Houston, Texas may be the next city targeted.

U.S. Food and Drug Administration (FDA)

FDA’s Oversight of Postmarketing Surveillance Studies of Medical Devices. The FDA is permitted to require sponsors of medical devices to complete postmarketing surveillance for any moderate-to-high risk medical device that has a reasonable likelihood of serious adverse health outcomes. This year, OIG intends to examine the extent to which the FDA has required such studies, the level of compliance among sponsors, and FDA’s oversight of the sponsors’ commitments. OIG will use this information to identify trends and challenges associated with the studies.

Adverse Event Reporting for Medical Devices. Continuing its focus on medical devices, OIG intends to evaluate the extent to which FDA ensures compliance with adverse event reporting requirements. In addition, OIG will examine how FDA uses such reports to identify and address safety concerns.  

Oversight of Human Cells, Tissues, and Cellular- and Tissue-Based Products Establishments. Following a 2001 OIG report, FDA promulgated new regulations strengthening FDA’s oversight of human cells, tissues, and establishments with cellular- and tissue-based products (HCT/P). The new regulations increased the number of inspections of HCT/P establishments that FDA will conduct annually. This year, OIG will review the effectiveness of FDA’s oversight of the HCT/P establishments and assess FDA’s inspection process.


The OIG 2009 Work Plan continues some familiar themes and suggests that OIG’s focus is evolving. In particular, hospitals, physicians, manufacturers, suppliers, and vendors should pay attention to the projects directed toward their industry. The entire health care industry would be well served by incorporating the guidance suggested by the audit and evaluation projects into their own compliance work plans for the upcoming year.


Legal News Alert is part of our ongoing commitment to providing up-to-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:


Maria Gonzalez Knavel
Milwaukee, Wisconsin

Alpana M. Kumar
Boston, Massachusetts

Caroline P. Lavelle
Milwaukee, Wisconsin

Jeannine Y. McGregor
Los Angeles, California

Michael Scarano
San Diego, California

Robert E. Slavkin
Orlando, Florida

Heidi A. Sorensen
Washington, D.C.

Lawrence W. Vernaglia
Boston, Massachusetts

Cheryl L. Wagonhurst
Los Angeles, California

Judith A. Waltz
San Francisco, California

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